Hush money, chai pani, omaggi, payola, smeergeld – call it what you will, a bribe is a bribe. And the Bribery Act 2010 is Parliament’s response to what is an age-old international phenomenon.
As easy as BAE
BAE’s arms deals indiscretions over the past decades are a good example of the very English stance of ‘don’t ask don’t tell’ in relation to crooked practices (juicy details can be found here). It all started in the economic gloom of 1965 when Whitehall set up an arms sales department primarily to secure arms deals through overseas intermediaries – 'fixers' or 'bagmen' – who would be paid a commission for successful contracts. These intermediaries would be appointed mostly by commercial arms dealers themselves (enter BAE Systems). Better this system than members of the British government directly approving funds to ‘entertain’ agents.
So with a nod and a wink, British diplomats across the globe were told that the ‘office of defence sales need all the assistance which we can give’, paving the way for a long-running illicit relationship between the government and BAE.
For many decades the British government and BAE worked in sync, securing arms deals with countries like Kuwait, Saudi Arabia, the Netherlands, Venezuela and Chile. The shifty mechanics behind some of these relationships drew significant international attention.
For many decades the British government and BAE (nationalised by Labour then privatised by Thatcher) worked in sync, securing arms deals with countries like Kuwait, Saudi Arabia, the Netherlands, Venezuela and Chile. The shifty mechanics behind some of these relationships drew significant international attention. By the early 2000s, pressure from the US, the Organization for Economic Co-operation and Development (OECD) and the Serious Fraud Office (SFO) made it increasingly difficult to temper accusations. Sometimes these were silenced altogether: the foreign minister of Qatar effectively ended an SFO investigation when he paid the British authorities £6m for the ‘inconvenience’ of investigating a £7m commission he had received.
The bribing of Saudi royalty by BAE and the British government (worth £6bn in today's money) was cut short because of ‘national security threats’ after BAE's lawyers – Allen & Overy – had allegedly attempted to influence the Attorney General to drop the case. Even though Britain repeatedly managed to covered its back on this issue, the snowball effect of the Saudi-BAE investigation resulted in discoveries of BAE corruption in other countries.
We at the Student Guide would like to think this fascinating bit of history played an important role in the decision to finally update Britain's antiquated bribery laws.
Taking Action
The Bribery Act was introduced into parliament in 2009 and came into effect in July 2011. Flexible in nature, the Act is intended to keep up with constantly evolving instruments of bribery. It focuses on commercial business structures rather than the queue-jumping-tenner at a nightclub. Indeed, the Serious Fraud Office (SFO) – which recently had its budget cut – is not likely to embark upon a lengthy and costly investigation if it’s not ‘in the public interest’.
Even before the Act’s implementation in 2011, critics raised objections ranging from jurisdictional loopholes to supposedly legitimate exceptions relating to corporate hospitality. The UK business community was understandably very apprehensive about the effect of the Act on commerce and competition. But before addressing its nuisance value, it is worth looking at the basics of the Act itself.
What's in the Act?
Like all statute, the Bribery Act natters on for more than a dozen sections; for our purposes the most important ones are 1, 2, 6 and 7.
1 and 2 are general offences covering bribing (active bribery) and being bribed (passive bribery). The offence of (active) bribery can be incurred in two ways.
Section 1(2) begins by stating that a person guilty of active bribery is someone who “(1) offers, promises or gives a financial or other advantage to another person, and (2) intends the advantage to (i) induce a person to perform improperly a relevant function or activity, or (ii) to reward a person for the improper performance of such a function or activity.”
So, that would cover a certain former Labour minister who dubbed himself a “sort of cab for hire” and said that for £5,000 he would use his government contacts to change policies in favour of business.
But section 1(3) states that active bribery is also committed by someone who “offers, promises or gives a financial or other advantage to another person, and (b) knows or believes that the acceptance of the advantage would itself constitute the improper performance of a relevant function or activity.” (emphasis added)
This means that if one of various companies in a bidding war treats a member of the deciding committee to an all-expenses-paid trip to Mustique, something fishy is going on…
Section 2 deals with passive bribery, which entails requesting, agreeing to receive or accepting a bribe. In short, it is considered an offence if someone requests, agrees to receive or accepts a financial or other advantage, with the anticipation or the intent to conduct a relevant function or activity improperly. It is also an offence if someone accepts a reward for improper performance of a function. This applies no matter whether the person knows or believes that the performance of the function is improper.
If one of various companies in a bidding war treats a member of the deciding committee to an all-expenses-paid trip to Mustique, something fishy is going on.
What is more the mere request, agreement or acceptance of a bribe can constitute the improper performance of a function or activity. And the recipient of the bribe or advantage need not always be the person carrying the function out; acquiescence is all that's needed.
For both sections, it’s irrelevant whether the bribe is offered or accepted through or received for the benefit of a third party. And in common sense application, a ‘function’ is interpreted in its most fundamental sense. For example, you would expect a policeman to investigate a crime without any ulterior motive.
Keeping in mind the shenanigans of the British government while securing international arms deals, section 6 expands on the bribery of foreign public officials – individuals who hold a legislative, administrative or judicial position outside of the UK. This also includes those working for a public international organisation, where the members are countries, governments or other public organisations. Both section 1 and 6 penalise the same kind of conduct but the latter is formulated to be effective without requiring the foreign state or country's co-operation. Offering an advantage (directly or through a third party), financial or otherwise to influence a foreign public official for the benefit of another person or their business is an offence.
Finally, section 7 of the Bribery Act deals with the failure of commercial organisations to prevent bribery. A commercial organisation is defined as a partnership or an incorporated body, formed under UK law, carrying on business here or elsewhere; the Act also covers partnerships or incorporated bodies formed anywhere carrying on ‘significant’ business in any part of the UK. (The arms of this law have a very long reach!)
Section 7 of the Bribery Act deals with the failure of commercial organisations to prevent bribery.
If any individual or corporation related or associated to these commercial bodies commits bribery (under sections 1 or 6) intending to get an advantage or retain business for the organisation, the commercial organisation is liable, even if said individual or corporation is not prosecuted. Though the associated person could be an ‘employee, an agent or a subsidiary’ the nature of the relationship is looked at in the entirety of the relevant circumstances. However, there is a defence that commercial organisations can raise: having preventive measures in place. The guidance expands on what constitute ‘adequate procedures’ using six principles:
- Proportionate procedures
- Top-level commitment
- Risk assessment
- Due diligence
- Communication and training
- Monitoring and review
In addition, the SFO released several simple guidelines for corporations on matters like facilitation payments (which are still illegal) and corporate hospitality (which is not).
Reactions to the Act
While the Bribery Act has been welcomed, it has had its fair share of critics. In an unstable economic environment, you'd think that government wouldn't want to aggravate the business community with extra regulations. But the Bribery Act was necessary to fulfil Britain's obligations to the OECD. So commercial organisations were handed a pacifier to ensure the Act's smooth passage through parliament: defence by means of ‘adequate procedures’. Unfortunately, the general nature of the guiding principles behind this defence opens it up to interpretation by both businesses and prosecutors, leaving business more antsy than ever. In addition to worrying about the limits of corporate hospitality, they now also have to bribe-proof their houses!
The Bribery Act was necessary to fulfil Britain's obligations to the OECD.
Others wonder whether there are jurisdictional loopholes that will provide an undue advantage to some, going against the claim that the act is supposed to secure a level playing field. Companies listed on the London Stock Exchange that do not have ‘significant’ operations in the UK are likely to be able to fly under the radar. And more strikingly, parent companies that have subsidiaries in the UK are provided with a get-out-of-jail-free card, because subsidiaries are deemed to function independently. This subsection of the Act has drawn a lot of fire as it seems to encourage non UK-incorporated companies to form ‘clean’ UK subsidiaries while continuing to operate their worldwide operations in whatever way they wish.
When he was Justice Secretary, Kenneth Clarke said the Act's workings are based on ‘common sense’, so it is hard to understand its actual scope until more cases are brought to court and precedents are formed. Until then, instead of worrying about Christmas presents to clients, business organisations are opting to refer their questions to those who can best help them incorporate the act in their daily operations: law firms.
Business organisations are opting to refer their questions to those who can best help them incorporate the act in their daily operations: law firms.
Many – including Freeth Cartwright, Burton Copeland and Trowers & Hamlins – offer specific training and guidance for companies on the Bribery Act. But all kinds of firms – from the magic circle to mid-size regional outfits – are finding that their clients are demanding more and more advice on compliance with the Act.
For those interested in finding out more, www.thebriberyact.com, run by Barry Vitou of Pinsent Masons and Richard Kovalevsky QC of 2 Bedford Row is an incredibly useful resource. Lewis Silkin also provides more information on the implications of the Act for different industries.